• 2019 05 Asia Pension Fund Banner

Asian pension funds and other asset owners, including monetary authorities, central banks, and sovereign wealth funds, face significant short- and long-term threats from water and climate risks. In this paper, we assess the depth of these risks arising from both adaptation and mitigation and discuss how they are embedded in Asian market indices and current asset allocation practices of Asian pension funds.

Key takeaways

  • Climate change is multiplying risks for investors in Asia, with severe consequences expected to impact water resources. Investment portfolios of Asian asset owners are uniquely exposed to these risks due to their high domestic investment concentration, putting the continent’s savings at risk.
  • Major water and climate risks include the impact on logistics from rising sea levels and storm surges, increasing risks from extreme weather events affecting dense areas, and regulatory risk triggered by water-related policies.
  • The Nikkei 225 and KOSPI indices are particularly vulnerable to logistics and supply chain disruptions, while the Hang Seng Index and Straits Times Index are skewed toward financial institutions, which are prone to systemic shocks from clustered risks arising from lending to multiple sectors in concentrated locations.
  • While Asia is more exposed than the rest of the world to policy risk, it also has the greatest opportunity to benefit from low-carbon transition technologies.
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